Athos I: New “Safe Berth” Case from SCOTUS
One theme in the law is the way older commercial concepts often take on an enlarged role in civil litigation. One example is the shipowner’s duty to provide a seaworthy vessel to someone who signs on as crew. The oldest cases treat this duty as a sort of “condition precedent” to be met by the shipowner before the crewmember was obligated to come aboard. That is, if the crewmember arrived at the pier only to discover an unseaworthy vessel, he could desert the ship without facing the traditional penalty (jail). Today, a crewmember injured by an unseaworthy condition–even a transitory one the owner did not know about–stands to recover generous damages in court.
The realm of ship chartering is a bit more arcane but shows the same evolution from simple contractual obligations to hefty court awards. A “voyage charter,” that is one for a trip from one specified port to another, has always included something like a “safe berth” clause. The idea is that the charterer is supposed to provide a “safe berth” to load and unload the ship. If the berth isn’t safe (often a judgment call by the ship’s master), then the ship need not use the berth. The charterer is then typically stuck with the cost of alternative measures–often “lightering” the vessel by transferring the cargo from the ship to a smaller vessel like a barge.
But just how far does the safe berth clause go? Does it just give the master the right to take a pass on a berth that doesn’t look safe? Or is the charterer liable for damages if the ship is damaged by an unsafe berth condition?
These issues were taken up in a recent U.S. Supreme Court case, Citgo Asphalt Refining Co. v. Frescati Shipping Co. (Op. No. 18-565, March 30 2020). Frescati involved a 2004 (yes, that long ago) oil spill from the oil tanker Athos I. The tanker was owned by Frescati and on time charter to an intermediary, Star Tankers (unlike a voyage charter, a time charter is for a specified period of time. It is common for time charterers to enter into individual voyage charters with buyers or sellers who must deliver goods by chartering a suitable vessel). Star Tankers in turn entered into an “ASBATANKVOY” form voyage charter with CITGO Asphalt Refining Co. (“CARCO,” although the name suggests a used car business). “ASBATANKVOY” is a standard voyage charter form widely used in the crude oil industry. The charter included the usual safe berth clause (“[t]he vessel shall load and discharge at any safe place or wharf…”).
Unfortunately, the berth selected for unloading of the Athos I’s crude oil cargo (Paulsboro, New Jersey) did not turn out to be safe. As it approached the dock, the tanker came into contact with a large anchor sitting on the bottom of the Delaware River. No one knew the anchor was there or how it got there, but it tore open the Athos I and resulted in a major oil spill. As vessel owner, Frescati was required by law to step in and recover the spilled oil. It ran up a multi-million dollar clean-up bill, a portion of which was reimbursed by the United States because Frescati exceeded its maximum oil pollution liability limit. Frescati and the U.S. sued CARCO on the grounds that the berth it chose for unloading of the oil cargo was unsafe.
But did the “safe berth” clause amount to a warranty that the berth would be safe, or did it just give the tanker’s master the right to refuse to tie up if he or she had reservations about the safety of the berth? Federal appeals courts have divided on this issue, some holding that the charter has an absolute obligation to provide a safe berth, and others holding the charterer to a “due diligence” obligation. Under the latter approach, the charterer is liable only if it knew or should have known of the unsafe condition–and it was disputed whether CARCO had any way to know about the long-submerged anchor threatening the approach to its berth. The U.S. Court of Appeals for the Third Circuit, which covers New Jersey, opted for the absolute obligation and held CARCO liable for the breach of the safe berth “warranty.”
A seven-judge majority of the U.S. Supreme Court, in an opinion written by Justice Sotomayor, upheld the Third Circuit. The Court reasoned, among other things, that contracts often impose absolute obligations on the parties. Take a car warranty for example: if you buy a lemon, the dealership doesn’t get to argue that it had no reason to think the car was no good. A warranty is a warranty. The majority saw no reason to incorporate the fault concepts of tort litigation into what was really a contract dispute. So those of us waiting with baited breath to learn whether the safe berth clause is a warranty or a due diligence obligation need wait no longer: the warranty view prevailed before the Supreme Court.
A dissent written by Justice Thomas and joined by Justice Alito disagreed that the safe berth clause necessarily amounted to a warranty. The dissent noted that other warranties in the voyage charter used specific language to that effect (“the charterer warrants…”). The dissent preferred the narrow view that the shipowner was only obligated to load and discharge cargo at safe berths and was not liable for refusing to tie up at an unsafe berth. Under this view, if the master is satisfied that the berth is safe and proceeds to moor the vessel, the safe berth clause no longer applies. There is some commercial practicality to that view. In many cases, a charterer knows no more than the shipowner about the safety of the berth. Often the charterer will have simply hired a commercial terminal to load or unload the charterer’s goods. The master is at least familiar with the ship and will often have a better sense of whether the proffered berth is safe once the ship has arrived.
One interesting tug-of-war between the majority and the dissent had to do with language in the safe berth clause to the effect that “the vessel shall load and discharge at any safe place or wharf…” That language, according to the dissent at least, could be read as a warranty by the vessel not to discharge cargo anywhere other than a safe berth, i.e. a warranty not to use an unsafe berth to discharge cargo. This in turn could lead to (again in the dissent’s view) contradictory safe berth warranties from owner and charterer. The better reading of this language (and the one endorsed by the majority) is that the vessel must load and discharge at any place or wharf nominated by the charterer, but only so long as it is safe.
The Frescati takeaway for voyage charterers, especially traders with little ability to gauge the safety of a cargo terminal, is that many standard form charters will make them insurers of the safety of berths. Of course, the parties can always revise the safe berth clause to make the charterer’s obligation one of due diligence, not absolute warranty. Indeed, this seems to have been the case with respect to the time charter between Frescati and Star Tankers, which is why Frescati sought damages directly from CARCO.